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Toward an Appropriate Measure of Uncertainty in a Risk Programming Model

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  • William T. McSweeny
  • David E. Kenyon
  • Randall A. Kramer

Abstract

The measure of uncertainty in a risk-programming problem has long posed a dilemma. The use of the variance of realized returns assumes that the distribution of realized returns is the same as the distribution anticipated by the decision maker prior to the start of production. Rejection of this maintained hypothesis requires either direct elicitation of these distributions or construction of another measure from realized data. A mean-squared forecast error is considered an appropriate measure. Optimal solutions to a quadratic risk-programming problem are obtained using this measure and compared to those obtained using traditional measures.

Suggested Citation

  • William T. McSweeny & David E. Kenyon & Randall A. Kramer, 1987. "Toward an Appropriate Measure of Uncertainty in a Risk Programming Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(1), pages 87-96.
    • Handle: RePEc:oup:ajagec:v:69:y:1987:i:1:p:87-96.
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    Cited by:

    1. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    2. Sureshwaran, Suresh & Thompson, C. Stassen & Henry, Mark S. & Loyd, M.I., 1990. "Economic Surplus And The Distributional Consequences Of Deregulating Tobacco Production," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 22(2), pages 1-11, December.
    3. Blank, Steven C., 1990. "Returns To Limited Crop Diversification," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(2), pages 1-9, December.
    4. Duncan, Steven Scott, 1988. "The relevant forecast of variance of income for marketing decisions under uncertainty," ISU General Staff Papers 198801010800009839, Iowa State University, Department of Economics.
    5. Schoney, R. A., 1990. "An Analysis of Wheat Supply Response Under Risk and Uncertainty," Working Papers 244030, Agriculture and Agri-Food Canada.
    6. Reid, Donald W. & Tew, Bernard V., 1987. "An Evaluation Of Expected Value And Expected Value-Variance Criteria In Achieving Risk Efficiency In Crop Selection," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 16(2), pages 1-9, October.

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